Post-Christmas economic vent

Following Derb’s vent, I have to get this one off my chest, however elementary the sentiment: If I hear one more Democrat (and occasional Republican) in the House or Senate condescend to business, I am going to throw up. Today it’s insurance and drug companies, tomorrow it’s oil producers, toy companies, banks, chemical manufacturers, or any number of other enterprises that offer necessary or simply life-enhancing products and services. The preening self-righteousness towards for-profit economic activity is not specific to any particular legislative initiative such as “health care reform,” it is part of the psychological make-up of many politicians and huge swathes of educated professionals, including virtually the entire academic world and non-profit sector, the media, and many high-paid lawyers. It is simply unbearable to hear these sheltered senators and congressmen look down upon people who have had the guts to try to create something that other people want to buy; who have had to figure out intricate supply chains and methods of financing; who have had to organize and motivate their employees; and who take financial risks with no guarantee of reward. For the anti-business mindset, the fact that businessmen need to make a profit in order to continue operating renders them prima facie suspect, if it doesn’t outright undercut any claim that they might have to contribute to the public good.

Vermont Senator Bernie Sanders recently encapsulated one fallacy regarding for-profit activity prevalent among intellectual elites: “The point of insurance companies is not to provide health care but to make a profit,” he said, as if these were mutually exclusive goals. Sanders complained that for-profit insurance companies are too bureaucratic and, in a flight of fancy that would have seemed like a fringe conceit just a year ago, asserted that they require government to provide efficiency-inducing competition. The hilarious idea that government is less bureaucratic and more efficient than private sector companies will endure even if the seemingly nine-lived public option finally stays dead.

The anti-business mindset often takes a more specific form: it is “corporations” that are the enemy, not, by implication, the corner grocer. Glenn Greenwald, for example, denounces “corporate interests” as part of a defensible critique of government entanglement with business. My guess, however, is that he sees “corporate interests” as a cancer upon the land in general, not just because Washington bailed out some banks. I have always wondered whether, when unwashed NoGlobal protesters and their more presentable soul-mates in government and Hollywood rail against corporations, they are carefully singling out limited liability for criticism and would shut up if all business were organized as partnerships, or if they are simply using “corporation” as a shorthand for all for-profit activity. I tend towards the latter view.

In any case, this knee-jerk contempt for business is worthy of a pampered adolescent who is searching for a cause with which to display his unique moral sensibility. It is not worthy of an adult who should be able to use his imagination, if not actual experience, to appreciate the extraordinary human effort that has gone into creating the delightful tools that we daily take for granted. On my desk sit various humble objects—a tiny clock, a stapler, a paper clip box, a Lucite cook book stand for holding up drafts and other papers while I type. Each object represents a fractal geometry of complexity, composed as it is of parts that themselves require enterprise to manufacture, assemble, and deliver, all born along on waves of energy and infrastructure to which yet another set of entrepreneurs contributed. The fact that all of those distributors and manufacturers tried to make a profit does not detract from the fact that they offered goods which enhance our lives.

Bernie Sanders presumably thinks that he is worth every penny of his $174,000 salary and not one cent less, for he would never do anything as contemptible as make a profit on his Herculean labors in the Senate. The same goes for the tenured faculty in the nation’s most prestigious universities who look down upon corporate profit-takers: each is a bargain at $250,000 a year. Greed is a vice that only affects other people; the beneficiary of a rent-controlled apartment is not being greedy in expecting to pay a below market rent, but merely collecting her due. It’s her landlord who’s avaricious in thinking he might make a market return on his investment.

Legislative grandiosity is the flip side of the disparagement of business. Legislators portray their passage of bills in heroic terms, as if they were personally responsible for keeping society humming along, even though it’s other people who will carry out the actions that the legislators require and without whose daily labors they would have nothing to regulate. Connecticut Congresswoman Rosa DeLauro exuded magnanimity during a recent House End-of-Year Wrap-Up Session captured on CSPAN, so much so as to result in an unfortunate slip of the tongue,: “This House–we understand, we’re there,” she said. “You can count on us because we believe that it’s our moral responsibility to make sure that you and your family need our help.”

Health insurance companies may not always act as we would wish, especially since we expect them to function not as actual insurance but as automatic deep pockets for ongoing, foreseeable medical consumption. But to interpret their behavior exclusively as a function of the profit motive is absurd when they operate in a market distorted by government mandates on coverage and limits on where and how they can operate, mandates that are only going to become more complex under the new bills. And whether health care is backstopped by insurance companies or the government will not make a huge difference in the looming question of how society as a whole will pay for ever more complex and costly procedures to prolong human existence past its natural shelf life.

Businesses make negligent as well as reckless mistakes, and irrationality takes as large a toll on economic behavior as on other forms of behavior. Some owners and employees are crooks. I know of no evidence that the scoundrel factor is higher in business than in politics or the non-profit sector, however. Government regulation of business is inevitable; externalities like pollution and noise cannot easily be reduced to optimal levels through market exchange. But let regulation be done with trepidation and humility, in recognition of our ignorance of the myriad factors that go into vibrant economic life. Is it too much to hope that even if most elected bodies are immaculately free of anyone who has owned a business, that some small portion of the political class try hard to imagine the difficulty of charting future growth and hiring with no idea what tax levels or regulatory mandates will be in coming years, much less the difficulty of operating under a burdensome regime of existing taxes and regulations?

It is the ingratitude that kills me the most among anti-business types. The materials that furnish a single room in an American home required daring, perseverance, and organizational skill from millions of individuals over generations. I hope they all got filthy rich.

31 comments

As someone who rails against corporations from time to time, I like to think my railing is a little more sophisticated.

There are plenty of corporations that make buckets of money that command my great respect. As shorthand, I will call them ‘deserving corporations’. Deserving corporations earn their money while delighting their customers, treating their employees and their environment with respect. Hank Rearden ran such a company and his counterparts in the real world gave us iPods, Google, Costco, Whole Foods, Amazon and a whole lot more. Those companies, as far as I am concerned, are welcome to every pot of gold that they are able to mine.

Something happens to corporations when making money becomes their top priority. Customers become an annoying nuisance. Suppliers are resources to be strip-mined into dust. They start hiding the option to end your subscription or writing things into the small print or looking for ways to deny you coverage or making things that break the first time you use them.

Can’t we find a way to rail against un-deserving corporations while still respecting the piles of money made by deserving ones?

Many of the reasons big corporations are targeted for scorn stem from how unlike the heroic entrepreneurs you invoke in your opening they are. They use their clout and government connections to push around their customers and prevent competition with competitors or even close off their markets from new firms entirely. I’ve come to believe that out and out government programs would be preferable than many of these public/private monstrosities we seem so fond of here in America.

To me, the only thing that makes “corporations” bad is when they get in bed with the government. It’s the welfare/regulations that help prop up the most heinous monopolies and cartels that are the problem, not profit motive. Everybody’s motivated by profit, even if they don’t make very much money, so it’s stupid to demonize someone for merely doing what everyone else would’ve done, should they be placed in that someone’s shoes.

I’m with Kevin – and I speak as a retired top executive from a giant corporation. Our private health insurance companies are particularly undeserving of the praise Heather would have us grant them (and which for many enterprises, large and small, would be justified just as she suggests). Ask anybody who files for a claim. Or any doctor whose staff must spend hours each week defending a treatment or trying to get an essential procedure approved. As for hanmeng’s argument, sometimes it’s correct but all too often the bad drive out the good (one of the points Keynes intended with his critique of “in the long run” justifications for assuming bad corporations and policies “eventually” self-correct). There are plenty of undeserving corporations who are doing just fine, thank you, precisely because they put their bottom lines ahead of their customers.

The very notion of an undeserving or a deserving corporation is a really silly one. It’s like complaining athletes make too much. Who decides what is too much and where the line is drawn? This whole invisible hand concept has a way of working those things out. There are of course good and bad companies, companies that play by the rules and those that don’t. But that just reflects human nature and as Heather points out, there’s very little experience which suggests government-run organizations have some kind of secret resistance to that factor.

I mean the major problems of corporations can be lack of competition and thus the lack of market self-regulation and the lack of motivation for employees to perform well in a massive enterprise which can lead to diminishing quality in goods and services. Now it appears pretty obvious that those two problems are if anything hugely magnified in public institutions.

Heather,
I think the emotional intensity of the contempt for business corporations needs an explanation and this is mine: Before modern times there were only two ways to become important. 1. Be born into the King’s family (and the nobility) or 2. make yourself useful to the King but doing astronomy, art, or warfare or something like that. The idea that one could become important by engaging in commerce, completely outside the bounds of the King’s Court, was not seriously entertained. Nowadays, Category 2 (above) is occupied by intellectuals wholly or partially beholden to the King (the Gov.). They are threatened by the corporate usurpers who, by means of their wealth, may replace the court hangers-on at the right hand of the King. Category 2 people are protecting their turf.
Steve

Deserving or undeserving isn’t that is the point of a market? Every day we make decisions on what is deserving of our money and what is not. If you think that Walmart is a cold heartless organization that treats its customers poorly don’t shop there.

I can’t believe that Sen Sanders rightly concludes that insurance companies are too bureaucratic but that is nothing that can be changed with a 2000 pages worth of regulations…

Who pays the piper calls the tune. If businesses are the ones that purchase health insurance. Companies purchase and not individuals insurance companies will spend all of their time pleasing the companies themselves and not the individuals. As long the insurance companies have the contract they are resistant to change. The costs of changing the entire company from company X to Company Y are huge so most companies even if they receive poor service rarely change. Having one plan that satisfies the needs of all Americans faces the same problems.

But if the costs of changing insurance if your a consumer are much lower. You don’t have satisfy all of your co-workers needs you only have to satisfy your needs. Also by allowing people to purchase health care across state lines and creating a national market costs will be cheaper. An insurance pool of 300 million people is cheaper to insurer than a fractured market of 50 different insurance pools

People tend to think that the status quo is the free market. The status quo doesn’t work therefore we need more government regulation. They ignore the fact that government spends 40% of all health care dollars. Or that Medicare has perverse incentives that keep prices high. Because if a insurance company finds a cheaper way of providing care they are reimbursed less than their competitors.

We want business to be profitable, that’s where our GDP comes from, where we get the goods to trade for the things we buy every day.

What does the government produce? They don’t create wealth, they consume it. Every additional person we pay to do a desk job beyond what is absolutely necessary is pulling wealth from the rest of the nation. With government jobs on average paying twice as much as those in the private sector, yet producing nothing, I find it reprehensible that they would insult the hand that feeds them in such a hypocritical fashion.

The ultimate waste is that of the public/private partnership; they are subsidies for corruption and failure. There are some parts of the private sector we could do without, and we should remain free to choose not to give them our custom. My list includes big oil, which ships off our wealth to terrorist nations at the expense of our own health, and insurance companies, which have wormed their way into every sector of society, often with mandate, and are paid a great deal to employ and deploy a staggering amount of bureaucracy against their own clientele.

I find it laughable that the government wants to “create jobs”. A job is only worth having if it needs doing. Government jobs only dig us deeper, and the free market system is quite capable of creating the jobs that are needed without the assistance of a bunch of bureaucrats.

Excellent points, I’m inclined to agree with the sentiment in this post. But I guess where you come down on this depends on what you think the score is.

The conservative line these days, and more or less since Reagan, is a simplistic Randian-plus-sound-bite-version-of-Hayek, with a dash of Arthur Laffer, wherein any discussion of actual market outcomes or collective action is immediately short-circuited by government-solutions-must-always-suck-and-fail, the free market is part of what it means to be American, etc. This unflinching and facile formulation is what defines conservatism today. Putting tea partiers aside, you have Cato and AEI and the WSJ opinion section and, say (to put a face on it), Larry Kudlow. The supply siders.

Poking holes is of course easy. When it comes to a massive government program wherein we drop bombs on brown people, it’s not only *not* subject to the same knee-jerk free market sentimentalism, it’s positively patriotic. Then there’s the inevitability of large corporations (simply following self-interest) entangling themselves with the state to tilt the playing field – I think you could fairly blame much of our current healthcare clusterf*ck on that. I expect Heather would acknowledge these faults (particularly regarding war), and then what policies you favor comes down to what weight you put on them.

I think a libertarian-ish (left-libertarian?) could reconcile himself to where Matt Welch (Reason editor) ends up:

“It is the ingratitude that kills me the most among anti-business types. ”

Yes we intellectuals should sit down and shut-up an ignore externalities. Air polluted with sulfur and mercury, paint contaminated with lead, brain damaged infants, epidemic asthma, the Bay with too many pcbs to allow regular consumption of the fish caught there. A war of trillions of dollars and too many lives too count to help the the corporation get it’s product to the market. An ocean acidifying with a continental size trash heap of plastic floating in the middle and climate changing before our eyes. A government owned and policy written by corporations. And now the corporations protected by the blood and treasury move their profits off shore and send their capital to labor markets where 80 hour weeks and no environmental or work standards exist. They play one state against another and one country against another to rise above all the rules of society. Their power growing so enormously they are still able inculcate the simple minded into thinking and promoting how great they’ve made their lives. And to denigrating anyone who dare pause to question the trends. It’s not the ingratitude that kills you its the nuances of reality smacking against the neat clear dogma that any self respecting secularist would condemn.

[…] Found this interesting post today, here is a quick excerpt of it: Comments (10) Trackbacks (1) Leave a comment Trackback · Kevin Lawrence. December 26th, 2009 at 13:13 | #1. Reply | Quote. As someone who rails against corporations from time to time, I like to think my railing is a little more … Read the rest of this great post Here […]

@Kevin Lawrence
Yes, there is a way to tell the difference. In a free-market capitalist society (which partially resembles ours), a company can only ignore customers if it has lots of money. It can only get that money if it has served customers well in the past. So, a company can take a sabbatical from being directed by customers, but only in proportion to how they have served customers in the past.

In a mercantilist society (which partly resembles ours), companies get rich by getting a franchise from the government, which may include copyright, patents, subsidies, tariffs, a regulated monopoly, favored treatment under the law (e.g. such as unions have), government purchases, and suchlike. THAT is how you tell the difference.

@muirgeo
Somewhere a village is missing its idiot. I guess I’m not surprised to find you infesting this blog also. Don’t you have something productive to do, like make money?

Just in case you’re serious in your quest for information(which you’ve never been previously), consider that all forms of pollution are fundamentally trespass against somebody’s private property, even if it’s carried by unowned air or water. Oh, but THE GOVERNMENT won’t let me defend my private property against pollution. I must sit quietly and wait for the government to protect me from polluters, and if they don’t, well, I guess I can vote. But somehow in your brain, this is a problem caused by business.

The Political DictionaryLiberal Economics: Money falls from heaven for everyone to use. But, the immoral and sneaky rich gather more than their share. The government should then step in and redistribute the money the way God intended. Sorry, I mean the way Gaia, or the Tooth Fairy, or whoever intended.

– –
I will risk being boring. Profit is just the name for what some members of a productive group are paid. Some people get a “salary”, which is their personal profit for going to work. The owners and investors get whatever is left over, their profit. This analysis says that value is created each day and is divided among the participants according to their agreements. We call a guaranteed portion a “salary” and an unguaranteed portion a “profit”.

There is nothing “extra” about profit. It is merely what the owners and investors get paid for participating in the project. Or, it is called a “loss” if they use up time and materials without producing things that are more valued.

The leftist criticism for everything is that someone is making a profit. From a government perspective, where most profits are handed out to co-conspirators, I understand how one could see profits as excessive handouts to disagreeable people.

But, it is laughable to think that government administrators are motivated exclusively by altruism. They don’t consider their wages, expense accounts, vacation pay, per diem reimbursements, medical care, and pension as their personal profit. No, that is an honest salary for hard work in a mind-numbing environment.

Most people regard profits as somehow unnecessary and “extra”. Without profit, things would be so much cheaper. Or, maybe not.

@Winston
But health insurance companies don’t operate in a free market. They have a franchise, courtesy of special treatment of insurance premiums for corporations. They are protected against competition from out of state. The terms of the insurance they’re allowed to offer is very highly regulated.And the purchaser of health insurance is almost never the consumer of health insurance. When somebody else pays for what I consume, of course I want the best, cost be damned.

Nobody is going to argue that the present healthcare situation in the U.S. is by any means optimal though the idea that a UK or Canada-style single payer system would be is downright delusional.

I think healthcare will always be an issue of public misgivings, simply because I doubt there’s any other field where the economics of the industry and the public expectations of it are more contradictory. It would be complete lunacy to “insure” a 50 year old smoker with lung cancer who may have 5 more years to live all of which will be filled with tremendous medical expense. That’d be like Lloyd’s insuring a capsized ship on its way down. Yet apparently a lot of people think it’s cruel to deny such a man “insurance”, they think health insurance literally just means “someone else paying for my medical care”.

I personally can’t envision a healthcare system that does not in some form or other results in tough, unpopular choices having to be made as a result of that perverse mentality. Healthcare is a hot button issue in basically every Western country whichever particular route they have chosen.

At the end of the day, it comes down to a classic free market vs public welfare state argument. I think myself that the welfare state solution has been thoroughly discredited with its perverse incentives, bloated inflexible bureaucracies and ever-increasing financial burdens for the taxpayer whilst public services simultaneously get worse not better. The free market solution wouldn’t be perfect and almost certainly unpopular with the masses of our age (as it would require the acceptance of individual choices having consequences) but I am not just convinced that it’d be more efficient and would provide better services at better prices to the majority of people, I am also convinced it’d be more ethical.

While I am in general agreement with Heather, it is worthy to note the followingL:

In a true free market, the ONLY way to profit is to satisfy customers. In our warped, much interfered with economy, often corporations benefit as much from their efforts in the halls of government as they do from satisfying customers. That tax break that applies only to them comes at the expense of all other taxpayers. And subsidies skew the markets, making TRUE calculation of profitability more difficult if not impossible, not only profiting the beneficiary company, but increasing the inefficiency of the entire economy by misdirecting resources. And regulations tend to hit smaller and upstarts more than established, larger, and politically connected firms. Corporations regularly lobby for all of this.

To me the ONE corporate whipping boy that deserves every bit of its infamy is Goldman Sachs. Both in previous administrations ant this one, Treasury Dept has for G-S employees strategically placed for its benefit. G-S “profits” consist entirely of sussidies, (it got 100 cents on the dollar for its credit default swaps, while others got nothing or as low as 13 cents, by way of the AIG bailout), altered accounting practices which allow it to over value “toxic assets,” and the helpful cooperation of the Federal Reserve system in bolstering its reserves with dollars counterfeited into existence. Mostly smoke and mirrors plus theft, very little by way of real wealth creation. Hardly capitalist or free market.

It seems that many of the enemies of capitalism are the “capitalists” themselves.

Heather, you are absolutely correct that even simple consumer objects are the end result of a fantastically complex web of production. Leonard Read’s classic essay “I, Pencil” is the best explication of this principle. You can read it here:

I would like to make two minor points in the hope they contribute to your excellent post:

1. Profit is a net measurement, not an absolute one. One can make profits (and many do) by driving down one’s costs more than one’s prices. What possible objection can there be to this?

2. Profit motivates people. If you remove it, what is left for motivation? Altruism? But, if altruism was sufficient motivation, why would people demand profits? This is the catch-22 of liberalism. In fact, we know that when you remove the profit motive, you remove motivation.

The anti-business mindset often takes a more specific form: it is “corporations” that are the enemy, not, by implication, the corner grocer.

IIRC, T. Sowell said something along the lines of “businesses are considered evil when they’re noticeably more efficient than their competitors.” (NOT an exact quote).

If you disagree, try paying for your next doctor’s visit with cash.

I agree with what you wrote, but I have paid doctors in cash and even got a discount for doing so (they said it was “less paperwork”).

They Are Profiting From My Needs

Nice story (not sarcasm!). My crappy memory strikes again, but SOMEONE wrote an essay to the effect that academics tend to be anti-business because “they feel that they should be getting paid as much as CEOs because they think they’re smarter than and, since they’re socialists, morally superior to mere business people.” The academic fights are so fierce because the stakes are so small.

Someone recommended me a link to Notable & Quotable from wsj.com and below is my response

“Heh, this is bullshit because it is written by someone I assume is anti-government and recommended to me by someone I know who is

When in fact, most of the technology which is worth marveling at was developed either wholesale by the government or directly subsidized by it and later reappropriated by and proprietized by business (which is actually a valuable service that business does, but let’s not shrink from the fact that this is how the majority of it is done)

Furthermore, it clearly indulges in the type of fantasy competitive capitalist imagery of perfect assembly lines meeting supply and demand with razor sharp efficiency which hasn’t really existed anywhere in the world since 1850 or so.

The reality is you can get some cutting edge stuff going on when a new industry opens and then, as is natural for corporate capitalism, the market evolves into a cabal of colluders who actually do nothing at all for innovation or competition.

But, yes, in a world where that information is lacking, she has a good point.”

I am surprised by some of the “former corporate executives” who have commented here and act surprised or disgusted by the fact that insurance companies profit. I wonder if they told their departments and direct reports to stop making money. Did they look at their stock options, bonuses, 401(k)s and pensions and say to themselves, “Hmm… I should give some of this back.” I highly doubt it. While some will say after my comment that they have nothing after the collapse of the market over a year ago, they were not complaining when they made money.

So let’s take a look at the insurance marketplace and determine why we are in the mess we are in. One simple fact that has eluded the enlightened discussion… it started with ERISA and is ending with the monstrosity we have now. (Actually if you go further back health and dental insurance were consider part of one’s compensation package. Still is. It is a means to supplement your income without having to actually pay you more. This is was done to stem to rise of inflation.) So we have distorted insurance marketplace that is governed by the one size fits all rules of government, with the pressures of insurance company investors to look for a return on their investments. All the while being told by their customers (the employers not the insured) that their services cost too much and the contract is going out to bid. What is left for them to do is either raise rates and/or cut services. Just like other companies do when under pressure… like the Airlines.

So now we have a government answer. Let’s explore what that means. For all of you who hate having things denied, the crazy amount of paperwork, and long wait times under the current regime. Congratulations! it got worse. If you have never spent time in VA or military hospital/clinic, then you have no idea how bad it is going to get. Most likely worse when this “fix” is applied to the entire country.

What should be done? Get rid of insurance or at least allow it to compete across state lines. Get rid of the subsidies and tax breaks to companies and allow people to buy their insurance as individuals. Allow doctors to publish their prices and get rid of the AMA’s monopoly on ICD-9 and CPT Codes. Healthcare prices will drop. Innovation will get better. Options once closed will not be available. Will there be disparities? Yes, as there are even in a heavily regulated marketplace. At least there will be the freedom that comes with most other choices we have. For now.